Morgan Stanley after Fed Chair Powell's testimony on Tuesday raised the prospect of higher rates, for longer.
- Powell's prepared remarks for his semi-annual testimony opened the door to a return of 50bp hikes at the March meeting if the incoming data flow warrants it.
- Upside surprises to Friday's payroll report could drive a faster and longer tightening cycle.
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I guess it could. I'm in the 'but' camp on this. It'd have to be a monster report to add to expectations that became elevated through the course of Powell's testimony overnight. The probability of a +50bp hike rose above 50% overnight:
Powell speaks again on Wednesday, US time, before the House. I suspect markets will calm down a little and not repeat Tuesday's volatility.
